The hole in the political landscape

One way to think about the political impact of the GFC is to look at the range of political positions it’s rendered untenable. This range is large, encompassing, in the US context, everyone from Bill Clinton to Newt Gingrich. More generally, it covers anyone who embraced the claim that a US-style economic system, as of, say, 1995-2005, was the best that could possibly be achieved, and could only be improved by making government smaller and/or more business-like.

Minus the US-specific triumphalism, this range includes the positions held by most major political leaders in the developed world at the time the crisis erupted, notably including both John Howard and Kevin Rudd, not to mention George Bush and Barack Obama. It covers anyone who saw the growth of the financial sector and the explosion of global financial transactions as beneficial and who regarded with equanimity phenomena like the growth of inequality and the decline of trade unions which both resulted from and reinforced these trends. Virtually everyone holding this view downplayed or disregarded the looming crisis until it exploded in late 2008.

A critical assumption underlying this views is that the system is stable enough to maintain equilibrium without substantial government intervention and without collapsing into crisis. As far as I can tell, no one seriously argues this in relation to the current financial crisis. There are those who argue that the kind of massive intervention we’ve seen shouldn’t be undertaken and/or will only make things worse. But, AFAIK, no one seriously suggests that, without intervention the system could right itself fairly fast and return to the situation prevailing in, say, 2006.

What are the implications of the collapse of such a large section of the political landscape, both for those who formerly occupied it, and for the rest of us?

Whatever their original position, politicians who actually have to manage national economies have scrambled to find some tenable ground to the left of the chasm that has opened under them, whether this means nationalising financial institutions (Bush was actually the first to do this, I think), taking over financial markets (Ruddbank for example), large-scale Keynesian stimulus packages (Rudd, Obama) or raising taxes on the rich as a first step to paying off the bills that are now piling up (Obama, Brown, hopefully Rudd in the near future).

Unsurprisingly, the immediate reaction (most evident in the Geithner plan) has been to aim for the minimal possible shift, in the hope that as much as possible of the status quo ante can be restored when the crisis is over. But it should be obvious by now that large and irreversible changes are already underway. Rudd has probably gone further than most in recognising this, at least in rhetorical terms.

The only tenable position for anyone who wants to maintain any part of the existing economic and social order is Keynesian social democracy, modernised to deal with the developments of the last few decades, and disciplined enough to avoid the disasters that brought down the Bretton Woods system in the late 1960s and early 1970s.

For those out of power, there are rather more options. The most common is simple wishful thinking, scoring cheap political points by opposing bailouts and stimulus packages while offering no reason to believe that the system can be sustained in their absence. This is the line taken by the Liberals in Australia and the Republicans in the US. It was evident in a lot, though not all, of the talk surrounding the teabag rallies in the US recently.By contrast, and as I predicted, the National-ACT government in NZ is offering stimulus packagesAustralia dvd and abandoning promised tax cuts.

The remaining option is the view that a catastrophic collapse of the existing system is both inevitable and desirable, and that, out of its ashes will emerge something new and better. For different values of “something” this is the view of Marxists, Austrians and Randite libertarians, some Greens and at least some of the populists who turned up at the teabag rallies. Obviously, the crisis implies a much higher probability for the “inevitable” part of the story than most people would have given it a year ago. On the other hand, there’s very little agreement on the desirable alternative that might emerge.

Adding-up constraints imply that the political mass that occupied the now-exploded part of the political landscape must be redistributed over the remaining territory. It will be interesting to see how this process evolves.

Short version: “I’m right, everyone who disagrees with me is wrong”. Intellectually bereft.

I attended a tea party. It was a lot of fun. People from all walks of life who have one thing in common: they’d rather stand on their own two feet than have some bureaucrat or politician tell them what to do.

John, I would make a couple of notes. There is no clear evidence that Geithner, Obama et all believe that a return to the status quo is inevitable as you imply. The reality is that their and Rudd’s job right now is to ensure that whatever changes we are in for are managed in a gradual and orderly manner, averting a complete
collapse along the lines you mention in the second last para.

For instance, it is a common point that the financialisation of the economy over the past three decades needs to be (somewhat) reduced. At the same time, however, it is imperative that the shadow banking system is revived in the near term: the shutdown of the securitisation markets and the consequent collapse in consumer lending has been a disaster. In practical terms, finance continues to be important and the broader philosophical point will need to be delayed until after we are at least tentatively out of the woods.

The same logic applies to other aspects of the current policy debate.

I note with interest your point about Kevin Rudd’s focus on rhetorical point-scoring. This is pretty much all Rudd’s done to date. Take banks: the government is basically trading off competition against greater perceived stability of the banking system offered by an oligopoly. Entrenching a banking oligopoly is hardly a social-democratic policy.

The other corrolary is whether our political systems are strong enough to effect social democractic policy in the face of the type of economic pressures I am referring to above, and, more to the point, a financialised elite. The US political system – as much as I continue to harbours some hopes that Obama will turn this around – is basically sclerotic and dysfunctional. You may want to see a Keynesian social democracy but you know what, ain’t gonna happen.

well the editors of “the Australian” don’t seem to have gotten the memo. A couple of weeks ago I masochistically read an editorial (somebody had left a copy lying around). In one column they say that governments around the world should be bailout the markets before asking any questions about reform. In the second column they say that reform is unnecessary because the markets are “self-correcting” (this is what a trillion dollar bailout is now called according to them – “self-correction”).

Even the largest and most incontinent bird would deserve better cage-lining than this paper.

I think you are getting a little too excited regarding the NZ Government’s supposed philosophical capitulation.

From my reading of the links you have provided, they are providing a $500 million stimulus package that consists largely of fast tracking Labour projects, and are reviewing tax cuts because they want to reduce the budget deficit. They are ‘curbing spending’ (admittedly this is always ambiguous coming out of a politicians mouth) as part of this.

Hardly a philosophical turn around. From my own reading on recent NZ politics, the Government seems to be going out of its way to (at least rhetorically) strike a different path to what we could describe as the present popular response.

As for this post in general, it seems to me that all you are doing is the equivalent of saying ‘we are all Thatcherites now’. Politics is cyclical and the time wil come for your particular philosophical bent to spend a period at the bottom of the ladder.

At least ‘keynesian social democracy’ will
get some time at the top though. That’s better than a lot of ideologies.

There have been a lot of claims that the demise of the US economy is proof of the failings of limited government, free market policies. Yet this ignores a number of factors.

One is that over the last several years, public spending in the United States as a percentage of GDP has increased substantially. In addition, there has been more of a move towards greater protectionism in trade policy. In reality, Ronald Reagan and Bill Clinton (with a few exceptions) did a better job of promoting free market and limited government policies than Bush junior, and America performed better under their watch.

It is not free-market policies that have destroyed America, so much as it is a combination of the big government conservatism of the Bush administration as well as the excessive litigation and various grievance industries that keep the Democrats in business.

Moreover, more recent OECD figures show that in the US public spending is now a higher proportion of GDP than it is in Australia (This is mainly because America spends more on middle-class entitlements and the military).

“The only tenable position for anyone who wants to maintain any part of the existing economic and social order is Keynesian social democracy, modernised to deal with the developments of the last few decades, and disciplined enough to avoid the disasters that brought down the Bretton Woods system in the late 1960s and early 1970s.”

If anything, I would think that the current financial position of many western governments is actually much worse than during the 1970s.

In the UK and the US, the national budget deficit is now around 10 or 12% of GDP. In normal times, having a budget deficit of more than about 3% of GDP is considered a serious concern.

Moreover, the current budget deficits don’t even take into consideration the future financial problems that governments will face, including the impending demographic bust as baby boomers get to retirement age and the greater fiscal and economic pressures this will create.

In light of all this, the idea that we can solve these problems by giving cash handouts and hoping people will spend them is ridiculous. I am sure they could commission a new series of Yes Minister to deal with current government responses to the financial crisis.

I think the comments above illustrate my point. No one in the thread is suggesting that the policies of the last decade are sustainable. Of course, it’s possible that the social democratic rescue package will fail too, but there is no alternative except to let the system collapse and start over. Or perhaps some commenters would like to propose one?

And thanks to new visitor scepticked who started with delusionist comments in the AGW thread, and demonstrated my point about the tea parties – the typical participant is someone who thinks that repeating vapid slogans constitutes a response to a global economic crisis. Wishful thinking at every point.

While I agree that political opinion has been revolutionized (see “Young Americans for Socialism”), I’m not so convinced that the 00s paradigm is being completely written off just yet. My impression is that while post-GFC western governments have permitted themselves to borrow, spend, and meddle with the banks that little bit more, they are still hoping to return to the global economic pattern which prevailed during the growth years of the 00s: the USA will go on borrowing from China, China will go on exporting more and more manufactures to the USA, Australia will go on getting rich thanks to the inexorably rising demand of developing Asia for our mineral commodities…

This is the perspective which says: the problem is that everyone stopped lending, and the solution is to get the lending going again. We just need to isolate and write off those rotten subprime losses, and then we can be off to the races once more. But I doubt it. There will be doomed attempts to revive those stalled formulas for growth, while the real future will be taking shape on the periphery of the economic managers’ field of vision. Eventually the last husk of the past will blow away and the new reality, whatever it is, will be visible to all. But this might take a few more years to play out.

JQ says; “The only tenable position for anyone who wants to maintain any part of the existing economic and social order is Keynesian social democracy, modernised to deal with the developments of the last few decades, and disciplined enough to avoid the disasters that brought down the Bretton Woods system in the late 1960s and early 1970s.”

I second that. I can’t see anything better. Having said that we must never make the mistake of thinking that history is over. Following hard on the heels of the GFC is the GRC (Global Resource Crisis). These twin crises will test world civilization to the limit.

ProfQ said: “I think the comments above illustrate my point. No one in the thread is suggesting that the policies of the last decade are sustainable. Of course, it’s possible that the social democratic rescue package will fail too, but there is no alternative except to let the system collapse and start over. Or perhaps some commenters would like to propose one?”

We need to get to the root cause of the recession and financial collapse – a broken banking system. The credit system is broken. Banks are hoarding money and the risks in their lending book are growing. This cycle of hoarding more money, resulting in additional economic contraction needs to stop.

The Govenment has to use insurance schemes to boost lending especially unsecured lending such as overdrafts which are critical for the SME sector.

Once the government addresses this issue, the monetary loosening will have a greater effect than it currently has and it can adopt a fiscal package that does not look like it has been written on the back of a napkin.

At 2: “Entrenching a banking oligopoly is hardly a social-democratic policy.”

Um, does anyone remember what started the 23 years of Liberal/Country Party government? Ben Chifley trying to nationalise the banks. Essentially we have nationalisation by another name at the moment. It is kind of akin to a doctrine that dare not be spoken!

The call for nationalisation of finance is worth quoting in full (though I don’t agree all the way with it).

“The justification for this bailout, like the previous ones, is that, if the government did not bail out the banks and their bondholders, then the whole financial system in the U.S. would collapse (in the memorable words of the worst president in U.S. history: “this sucker would go down”). Even the dreaded “d-word” is heard more and more, like a gun to our heads. It is a kind of economic “Sophie’s Choice”—either bail out the bondholders with taxpayers’ money or suffer a deep recession or depression.

Having to choose between these options represents a stinging indictment of our current financial system. The situation suggests that the capitalist financial system, left on its own, is inherently unstable, and can only “avoid” crises by being bailed out by the government, at the taxpayers’ expense. There is a double indictment here: the capitalist financial system is inherently unstable and the necessary bailouts are economically unjust.

7. Nationalize finance

Thus we can see that there is a cruel dilemma in capitalist economies for governments and the public and also for the left. When a financial crisis threatens, or begins, there seem to be only two options: bail out the financial capitalists in some way or suffer a more severe financial crisis, which in turn will cause an even more severe crisis in the economy as a whole, which will cause widespread misery and hardships.

The only way to avoid this cruel dilemma is to make the economy less dependent on financial capitalists. And the only way to accomplish this greater independence from financial capitalists is for the government itself to become the main provider of credit in the economy, especially for home mortgages, and perhaps also for consumer loans, and maybe even eventually for business loans. In other words, finance should be nationalized and operated by the government in the interest of public policy objectives.”

Now back to my own thoughts. I certainly do think that superannuation, income insurance, consumer health and property insurance and home mortgage business should all be nationalised in total. On the other hand, there is almost certainly a very good case for keeping productive industrial investment finance in the private sector.

Some socialism for the masses would certainly be preferable to the current “socialism” for the plutocrat bankers; i.e. bailing them out of their criminal stupidity with public money.

The International Socialist Review like most people looking at the issue with capitalism make it far too complicated. It is simple once you stop looking at the emergent properties of the system and look at why the structure of the system causes the system to exhibit these properties.

If we build any system where the governing mechanisms in Maxwell’s terms of control do not work we must expect the system to exhibit uncontrollable random behaviour. It is not Greenspan’s irrational exuberance. It is not banks being greedy or faulty regulation.

In any market, including money markets, price is supposed to control the market. That is if there is a demand for money and the supply cannot keep up with demand then the price will increase until supply matches demand. That is price is meant to be a governor not a demand or supply determinant.

Of course the financial system cannot work as it is supposed to work – zero inflation, no asset price bubbles, no recessions, no depressions because its internal workings do not permit it to operate like a proper market.

My quarrel is with the view of an economy mainly through the emergent properties of the system. Those properties are then manipulated and regulated instead of looking at the structure of markets and changing the way they work so that they operate as we want them to operate with price as the “governor”.

For money markets it is the way we increase supply of money and to whom we give control of the increased supply that is the problem. Fix this and we will get the money market operating as it is meant to operate and we can get different system behaviour such as steady growth, zero inflation, sustainable use of resources etc.

My main reservation about Barack Obama’s presidency so far concerns the trust he has placed in people like Larry Summers and Timothy Geithner. These men are creatures of the financial establishment, uninterested in pursuing the fundamental reforms urgently needed to make the financial services industry more sustainable and less prone to reckless risk-taking and recession-inducing crises. We need regulation that encourages more fragmentation of market share, and more competition, in financial services, so that in future there will be no individual financial institutions that are too large to be allowed to fail. If we can do that, then we will prevent the recurrence of moral hazard situations i.e. situations where we have no choice but to rescue institutions from the consequences of their own bad decisions. I think the President would be better served if independent thinkers like Paul Krugman and Joseph Stiglitz were shaping his economic policy.

Having said that, Barack Obama has the strategic acumen of a world chess champion, so he is probably about four moves ahead of everyone else. He has made the judgement that he needs people with firsthand experience of the existing system – like Summers and Geither – to be able to reform this system. I just hope he keeps them on a tight leash so that they are implementing his reformist vision, and not merely protecting the privileges of their mates in finance.

Kevin Cox at #15. I do agree that the rate of creation of money (by issue of debt via the fractional reserve system) needs to be looked at. I think economists like Steve Keen and John Quiggin would both say that the current rather ungoverned rate of creation of this “debt money” (right term?) plays a big role in creating asset bubbles.

We are on the same page if we are saying there need to be stricter controls on debt creation. Of course, the exact mechanism is the next issue.

Forgive me if I am a little sceptical of statements like, “It is simple once you stop looking at the emergent properties of the system and look at why the structure of the system causes the system to exhibit these properties.”

One way to think about the political impact of the GFC is to look at the range of political positions it’s rendered untenable.

this range includes the positions held by most major political leaders in the developed world at the time the crisis erupted, notably including both John Howard and Kevin Rudd,

Whatever their original position, politicians who actually have to manage national economies have scrambled to find some tenable ground to the left of the chasm that has opened under them, whether this means … taking over financial markets (Ruddbank for example), large-scale Keynesian stimulus packages (Rudd, Obama)

Adding-up constraints imply that the political mass that occupied the now-exploded part of the political landscape must be redistributed over the remaining territory. It will be interesting to see how this process evolves.

I am not game to predict the likely partisan re-alignment in the EU. It is experiencing a secular trend to the Cultural Right. Probably there will be a cyclical swing to the Political Left. Is Pr Q making a prediction of a secular trend to the Economic Left?

A big swing to the Centre-Left is obviously on in the US. It could hardly be otherwise given how much the US had been pushed by Bush to the Far-Right. Obama’s change priorities have been more fiscal, universal health care. He has so far piked it on financial change, as I predicted on 02NOV08.

on financial regulation my gut feeling is that Obama will go soft on the Big End of Town. The financial industry supports the DEMs with alot of money and kudos.

Alot depends on the durability of the current equity rally in the US. If it fails, as I predict it will, then I see some form of bank nationalisation as more or less inevitable.

The big problem for Pr Q’s “political re-alignment” thesis is that the GFC has so far failed to go through the formality of happening in this country. The Big Four banks are in the Global Top 20, well before fiscal stimuli. Consequently it is hard to see a major political re-alignment based on financial populism.

The AUS equity market has dropped back to early pre-PRC mineral boom noughties levels. Oh well, easy come, easy go. In any case, the evidence suggests that PRC growth will pick up where it left off within a couple of years.

The AUS property market has plateaued and is likely to drop back, if at all, to mid-noughties levels at worst. Still making our residential property the most valuable in the world. Immigration is still running at break-neck levels, so that looks like upside.

In any case, as I argued in 11JUN03, and he later admitted, Howard was a Big Government conservative from late 2000 onwards.

Rudd has darkened acres of newsprint denouncing Hayek et al for all they are worth. Probably he will rescind Costello-Howard’s last tax cuts. This is along way short of an ideological revolution.

The most likely cause of a major ideological shift in AUS is a major hike in interest rates which would cause a collapse in asset values. So our ideological fate is in the hands of the PRC’s thrifty little savers.

Sean#20 – patience is a virtue. Keynesian interventions would have been better twenty years ago when the unemployment rate should have been recorded honestly instead of manipulated to appear much lower than it really is.

Why am I nervous of interest rate rises as well…because history suggests at times when you need credit like recessions and depressions perversely credit can be tight and interest rates go higher. Is it a credit supply problem? Why does this happen?

Alice #21 – the first US stimuli was in 2008 and it has not stopped since. Europe, Asia, Australia have followed suit. These stimuli were labelled targeted, temporary, timely. They have not been any of these.

Alice # 22 – During recessions the credit risk increases so banks are less willing to lend. It becomes a vicious cycle and western countries are particularly vulnerable because we do not save enough money.

It would be much simpler a process of figuring out what are the needs for a different approach to whatever wealth is,by stopping the urge to over-generalise,when most peoples’lives cannot conform to any generality however it is applied.Except one taken for granted..community or society,nation people’s.Which is also very disconcerting,when starvation and disease are not ever present.Voluntary work in Australia up to recently had a element of people choosing the necessity of that work as a priority rather than a basic necessity of survival.Necessity isn’t a wonderful teacher but a process that requires little in the way of choice.We must resist Government necessity,as much as our own troubled neurotic tendencies of and to our own gloom as necessity approaches.Theorising doesn’t seem intelligent, if a place could do with a soup kitchen so even farmers know their productivity is still valued. The very cold churches of the past where ones knees could get very sore,maybe supplied a service other than worship and sore knees.I am not a lecturer on economics, when I am even working it remains unofficial in and of the paddocks and potato shed.A lot of food even in the Brisbane Markets gets turned away.Potatoes have copped it.And as social occasions can be invented for simplicity and low costs, may remove the problem of economic direction,because anyone could show up and share,thus listen. Find some way to tap into the larger community by large social free groupings,then the simple structure to get other matters moving is there and then made by knowing each other slightly better.Spuds dont have to be a basic food stuff or biomass to be converted to alcohol citric acid or as ways to store water in the ground around plants.They can also be burnt thoroughly as starch,and crystalized and be treated at extremes of heat at various speeds, be injected with flavourings,be soaked in metho and lit and thrown as a very hard molotov cocktail,or turn that into baseball.Who knows what even smarter people could get up to once they convert rejection into something worthy!?

#18 Ikonclast,
There is “good debt” and there is “bad debt”. Unfortunately the way we create debt mixes the two so we cannot tell good from bad. Good debt is where you lend money you already have. Bad debt is where you lend money you do not have.

The fractional reserve system was set up so that when there was a run on banks there would be money to pay depositors. That is, because banks lend long and borrow short it was a good idea for them to have some money in short term deposits to cover the demands when people started to withdraw deposits.

As we have seen when we get a serious run then the government has to step in and guarantee they will keep supplying the banks with money so when it is really needed it does not work.

One of the “side effects” of the system is that banks now become the way that extra currency is introduced into the system. Another side effect is that banks do not even know which money is “new money” and which money already exists.

It is this mechanism of money creation that is the main cause of the problem because money markets cannot work as they are supposed to work. Market are meant to work so that price is the controller not so price is the driver. That is when demand increases supply can increase and while we are waiting for supply to increase price will go up. Price cannot operate that way in a market where we can increase supply instantly by as much as we like and where we use the mechanism of availability of existing assets (money) against which to back our loans to control the supply of money. That mechanism is a positive feedback and leads inevitably to asset bubbles and then to contractions. It cannot work no matter how many regulations we put on the system.

Change the way extra money is created so that it does not require a loan to be created at the same time and it will fix most of the problems with the money markets.

We can do it without eliminating fractional reserve – which we can still keep – provided the government (Reserve Bank) creates enough extra money backed by assets so that the banks do not end up creating extra money.

I thought initially that we had to get rid of fractional reserve but I now believe it won’t be necessary if we have other ways of increasing the money supply. The Reserve Bank can then stop trying to guess what the price of money should be and it decides how much extra money to be created through the other mechanisms. It will take a little while for the extra money to get into the system and so price will become the controller it is meant to be.

The problem with the current stimulus packages is that we are still creating extra money by issuing loans. This reduces the ability of the banks to make loans with existing money and so the contraction continues.

The circuit breaker is to create extra money without loans. I have suggested one way that will not increase inflation and where the money will be spent wisely. Once we have started to create extra money this way we will see that money markets will start to operate the way they are supposed to.

The current system is convoluted and uncontrollable. The suggested system is much simpler and it will control itself.

Wishful thinking in your last paragraph, there JQ. I am certain that it will be more along the “terminator” lines where the exploded bits of the monster liquify and pull themselves into a reformed angrier monster, LRA style. And I believe this mainly because this more of a religion for these people, not reason.

Jack
#28 Iceland ha ha – when there is a big mess, who did they call to clean up – a woman, a social democrat and greens! A man on the other hand might only talk a lot about how bad the old cleaners were!.

I meant to response earlier to John’s question of whether there are any alternatives to the social democratic response to the global financial crisis.

It’s true that I haven’t spent much time proposing solutions, simply because I am not sure if there are any. That is, I think the weaknesses in western economies have become too entrenched now that there is not much prospect of avoiding a sustained economic downturn.

That said, I think the only policies that are likely to mitigate things somewhat are some modest supply-side measures designed to ensure that what is left of the productive economy doesn’t collapse, including:
- tax reform to reduce loopholes and exemptions, including winding back the Howard government’s tax free super payouts. This would help repair the fiscal side of things without hurting the economy too much. It could also be used to finance some tax relief for small business and average workers who are keeping the economy going
- some increases in infrastructure spending
- cut wasteful spending like the FHOG
- reduce small business regulation
- give failing financial institutions a choice between either going under or accepting conditions like tighter restrictions on lending in return for any assistance
- wage restraint in order to minimise job losses
- float interest rates, so that central bank interest rate targetting does not lead to excessive borrowing or asset bubbles

Other than that, the idea of simply handing out money willy-nilly and hoping people will spend is a silly policy that will achieve nothing.

There are several issues intertwined in your views. I’ll set aside one, namely the name of the political framework – social democracy – on the grounds that while our host has expertise in economics and politics, I have no independent opinion on politicl classification systems. That is, I take Prof. Quiggin’s political classification as a given. As a casual observer I can say that the ideas and policies that go under the term ‘social democracy’ seems to overlap with several political party platforms, sometimes more so than at other times.

As for the economic content, I can’t agree with you on the following grounds.

The basic idea of a ‘market’ is ‘exchange’. Supply side economics is not market economics because it focuses only on one side of potentil exchange situations – in aggregate, ‘the supply side’. Similarly, a version of so-called Keynesian economics – aggregate demand management – focuses only on one side of the market. It may well be that for short periods of time in specific countries under specific circumstances, a policy which looks like ‘supply side’ or ‘demand side’ may be relevant.

The current problem cannot be dealt with by ‘supply side’ policies. The current problem is a financial systems failure. IMO, this failure is largely due to the naive believe that financial markets (almost a misnomer) work like fruit and vegetable markets, characterised by many small suppliers and many small buyers. Furthermore, the ‘supply side’ arguments of tax reductions for corporations and high income earners have contributed significantly.

The idea of ‘floating the interest rate’ on government money and the idea of reducing the minimum wage to reduce unemployment may well be as solution to a problem, but not the problem we have.

The problem faced by governments is non-trivial: How to reduce the significant disequilibrium prices between physical and financial assets to make them less incompatible with wages. IMO, the so-called ‘cash handouts’ are one element in this process. Furthermore, there is a lot of double counting in some financial market data (ie aggregation of financial assets) and there is missing data on the characteristics of financial assets. That is, a re-conceptualisation of financial markets is called for.

John Maynard Keynes was a life-long member of the British Liberal Party, and later a Liberal Lord. Your firm linkage of his political and economic philosophy to social democracy is a re-write of history and entirely your construct.

Keynes loathed the tyranny of trade unions and the evil intent of communists but did express sympathy for socialists though he was deeply sceptical of the efficacy of their favored techniques.

I strongly recommend you read (or re-read) Minsky – of Minsky Moment fame – and all will become clear:
John Maynard Keynes by Hyman P. Minsky, 1975 Columbia University Press

Many in the commentariat characterize the smoothing of economic activity by governments through surplus and deficit accounting as ‘Keynesian’.

While this was part of Keynes’ General Theory, the full Keynes prescription – notably including, first satisfying the absolute needs of all by raising minimal consumption standards and then turning to the pursuit of the important noneconomic goals of life – has never been tried.

Keynes regarded himself as economically far to the left of the then-socialist British Labor Party. They, like the conservatives, believed in high investment; Keynes was for high consumption and none of this cossetting of business with tax breaks and government incentives.

David C, I was aware of these aspects of Keynes’ thought, but I think you are making a bit of a leap from “Keynes did not invent ‘Keynesian social democracy’” to “Quiggin invented Keynesian social democracy”. There are some other possibilities.

Since Keynes died in 1946, it’s hard to say how he would have viewed the Keynesian social democratic model that prevailed for the next few decades and was the first to deliver anything close to the goal of “raising minimal consumption standards” that you mention. And since Keynesian social democracy was developed and named before I was born, I don’t think I can claim the credit for it.

The point about non-economic goals is an interesting one. I have long had a half-written essay on this, which I will post some time.

What DavidC is trying to explain is that there is a tenuous link between Keynes the man and how he is perceived. He is right that Keynes was a lifelong Liberal and was never a supporter of the Labour Party (the promoters of social democracy/democratic socialism).

I remember a quote of Keynes from 1942 after a dinner with fellow economists when he stated that “I was the only non-Keynesian there”. Considering that Keynes died before the welfare state was properly established, you are right to suggest that he could have demolished the economic principles upon which it was established if he disagreed with it.

Of course, Keynes was paraphrasing Marx. My general point is that detailed discussion of “What X really thought” is primarily of historical interest.

I’ll ignore your final mischievous imputation, except to spell out my view that Keynes would in fact have supported the welfare state designed, in large measure, by his fellow Liberal William Beveridge. And of course, he would have been right to do so.